Honey Badger Silver Inc press release
Gabriel Resources Ltd. - First Quarter Report
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TSX Trading Symbol: GBU
TORONTO, May 10 /CNW/ -
Highlights
Financial performance
First quarter net loss was $1.8 million, or $0.01 per share. First quarter monthly expenditures averaged $2.9 million per month, or $8.6 million in total during the first quarter. A total of $6.8 million spent on our two development projects during quarter.
Liquidity and capital resources
Working capital at March 31, 2006 totaled $44.3 million. Our base budget for 2006 totals $30 million, excluding expenditures included in our US$638 million project capital cost estimate.
"The first quarter marks the turning point in the project with the completion of our Environmental Impact Assessment (EIA)," said Alan R. Hill, President and Chief Executive Officer. "We will be presenting to the Government of Romania plans for a mining project that meets or exceeds all Romanian and European Union standards, and can serve as a model of responsible mining for Romania and Europe."
Rosia Montana Project Development
Environmental Impact Assessment
During the first quarter the independent team of specialists completed the EIA. The 5,000 page document is being translated and will be submitted to the Romanian Government imminently. Due to the late submittal of the EIA, we expect approval in the fourth quarter of 2006.
Archaeological Discharge Certificate
The independent team of archaeologists completed their field work during April. The final report for discharge of the Cirnic massif, is expected to be submitted later in the second quarter, putting us on schedule for receipt of final discharge in third quarter 2006. The court case related to the Alba Iulia Court of Appeal's (the "Court") decision to annul our archaeological discharge certificate no. 4 for part of the Cirnic massif continues, as the opposition continues to delay the proceedings by attempting to introduce additional plaintiffs.
Acquisition of Surface Rights
During the first quarter, our new options program began in earnest - 90 homeowners signed up to program through April; a total of 52 percent of the homes in the affected area are now either owned or under option for acquisition by the Company. Local community held a march on May 4th to demonstrate their support for the project - over 500 residents joined in the 12 km march.
New Appointment
On May 10, 2006 the Board of Directors appointed Yani Roditis, VP/Projects, to the position of Chief Operating Officer. The appointment is effective immediately.
Updated Rosia Montana Project Timeline
With the delay in submitting our EIA, our target date to receive our construction permit is winter 2006-2007. We remain on schedule for first gold pour in spring of 2009.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management Discussion and Analysis ("MD&A") provides a discussion and analysis of the financial conditions and results of operations to enable a reader to assess material changes in the financial condition and results of operations as at and for the three month period ended March 31, 2006 in comparison to the corresponding prior-year period. The MD&A is intended to supplement the Company's unaudited consolidated financial statements and notes thereto ("Statements") for the three month period ended March 31, 2006 which are included in the quarterly report. You are encouraged to review the Statements in conjunction with this document. This MD&A should be read in conjunction with both the annual audited consolidated financial statements and the related MD&A for the two-year period ended December 31, 2005. All amounts included in the MD&A are in Canadian dollars, unless specified. Readers are encouraged to read our Forward-Looking Statement, which is included at the end of this report in conjunction with the MD&A. This report is dated as at May 10, 2006 and the Company's public filings, including its most recent Annual Information Form dated March 27, 2006 can be reviewed via the SEDAR website (www.sedar.com)
About Gabriel
Gabriel is a Canadian based resource company committed to responsible mining and sustainable development in the communities in which it operates. Gabriel is currently engaged in the exploration and development of mineral properties in Romania and is presently engaged in the development of its 80% owned Rosia Montana gold project. Our vision is to create value for all of our stakeholders from responsible mining. Our mission is to build Rosia Montana and, as a result, to be a catalyst in Romania for sustainable economic, environmental, cultural and community development. As we develop the world-class Rosia Montana project, we will strive to set high standards through good governance, open and transparent communications, and operations and reclamation based on Best Available Techniques -- all in the service of sustainable development. Whether the issue is corporate governance, community development, environmental safety or operational practices, we pledge to do it right.
Key issues
Environmental/permitting
The last step in the Environmental Impact Assessment ("EIA") process prior to submittal to the Government of Romanian is for the independent team of specialists to complete the EIA and ensure the documents comply with Romanian and European legislative standards. The entire 5,000 page EIA will be submitted in both Romanian and English to meet the requirements of the Romanian Government and the international Espoo Convention. In addition, while it is not a legal requirement, the Company has elected to have the Non- Technical Summary translated into Hungarian to assist affected parties in Hungary to better participate in the public consultation process.
Surface Rights
While we are now half way through the process of acquiring surface rights under the footprint of the project, considerable work remains. The process involves nearly 1000 households, of which we have acquired either by purchase or option slightly over half of the homes and associated properties; we also need to acquire a number of government and community buildings. During third quarter 2005, we completed the update of our property acquisition plan to reflect both changes in World Bank/IFC guidelines as well as a number of changes in local conditions and circumstances. The updated plan introduces a mechanism for the residents of the village of Rosia Montana to enter into option agreements with respect to the acquisition of their properties, thereby allowing us to continue the process of securing rights to the surface area required to develop the Rosia Montana project with fair and equitable prices ensured to property sellers, but without the significant cost outlay of an outright purchase. The option program allows us to expedite the acquisition of properties once we receive the approval of our EIA. The new options program began in earnest in January. Through April, more than 90 property owners signed options agreements. The Company now owns outright or has options to purchase 52% of the properties in the affected area. While the options program has met a positive response, many residents would prefer the Company simply to acquire their homes now rather than wait. With the submittal of the EIA being imminent, completion of field work for our archaeological discharge certificate, our improved communications program and project financing activities well underway, the focus of management's attention is going to move in the second quarter to the community, to maintain and build community support for the project to ensure we acquire the surface rights on schedule. The options program should cost approximately US$1 million over the course of the first nine months of 2006, committing the Company to acquire approximately US$33 million in local properties in the project area. Support in the Rosia Montana community is gaining momentum. On March 4, over 500 residents of the village held a 12-km march from Rosia Montana's village square to the town of Abrud. At the completion of the march, the groups - including the ProRosia community NGO and the two major mine unions - issued a statement calling on government encouragement for private economic development, underlining the need for jobs and the region's long history of mining.
Archaeology
An archaeological review of historic mining activity at Rosia Montana is a critical step in the granting of the construction permit to build the project. An archaeological discharge is required for all of the area under the footprint of the proposed mine. The area has been mined for at least two thousand years and now provides many traces of the earlier activity. Over the past five years we have been given several discharge permits to acknowledge completion of the program; however, one of the discharges for a part of the Cirnic Massif was annulled by the Alba Iulia Court of Appeal (the "Court") in June 2005. Along with the Romanian Minister of Culture and Religious Affairs, we have appealed the decision to the Supreme Court in Bucharest, based upon our view that the Court incorrectly applied the laws governing archaeological discharges and based its decision on a number of matters irrelevant to the granting of archaeological discharges. The court case continues, as the opposition continues to delay the proceedings by attempting to introduce additional plaintiffs. The ruling of the lower Court does not prevent us from continuing our archaeological discharge program and we can reapply for a new archaeological discharge certificate at any time, either before or after an appeal of the Court's decision is heard.
Financing
At March 31, 2006, we have $44.3 million in working capital. Our rate of expenditure was approximately $8.6 million for the quarter, or $2.9 million per month, excluding working capital adjustments. This rate is higher than the first quarter of 2005 when we spent on average $5.2 million per quarter or $1.7 million per month, largely due to increased corporate activity related to the progress of the project, higher communications costs and completion of the project design and completion of the EIA. The expenditure rate is expected to decline to approximately $2.5 million per month over the next two quarters with the submittal of the EIA but may rise as we begin ordering long-lead-time equipment and begin construction of the new village at Piatra Alba. The cost to construct the project is estimated at US$638 million based on a definitive feasibility study updated in early 2006 and released concurrent with our year end 2005 results. The estimated total cash cost to produce gold over the first five years is expected to average US$181 per ounce and average US$237 per ounce of the life of the project. The increase in both capital and operating costs over the previous estimates from early 2003 reflects in part significant cost pressures due to strengthening of currencies, higher raw material costs, higher steel and fuel costs as well as higher wages. While the updated cost estimate to build and operate the project contains contingencies, if these trends continue, these contingencies may not be sufficient to absorb the higher costs. On the positive side, these same forces have lead to the highest gold prices in 25 years, which overall have increased the return and the profitability of the Rosia Montana project. Also impacting the increase in capital was the fact that there have been certain changes to the project to improve the design, to reduce community impact and ensure compliance with changes in regulations. The project has been designed to meet the highest environmental, social and sustainable development standards.
New Appointment
On May 10, 2006 the Board of Directors appointed Yani Roditis, VP/Projects, to the position of Chief Operating Officer. The appointment is effective immediately and Mr. Roditis will continue to reside in Romania. Mr. Roditis joined Gabriel in June 2005. Prior to joining the Company, he spent 11 years with a senior gold mining company, where he gained extensive engineering, environmental permitting and mine development experience through a number of positions at operating mines and development projects in the United States, Peru, Chile and Argentina.
Updated Project Timeline
Our target is to complete our archaeology discharge in parallel with the approval of our EIA. We expect to receive archaeological discharge during the third quarter and the EIA approval in the fourth quarter of this year. Once we have completed those two steps, we would acquire the balance of properties in the village not already owned. Buying the properties in the village gives us the surface rights, which is the third key step in the permitting process. With the delay in submitting our EIA, our target date to receive our construction permit is winter 2006-2007. We estimate that it will take approximately two years to construct the mine, putting first pour of gold in the spring of 2009.
Results of Operations
The results of operations are summarized in the following tables, which have been prepared in accordance with Canadian Generally Accepted Accounting Principles:
<< $ Cdn 2006 2005 2005 2005 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter
Statement of loss
Loss 1,767,402 2,036,830 1,745,196 2,339,860
Loss per share 0.01 0.01 0.01 0.01
Balance Sheet
Working Capital 44,271,673 52,870,559 28,908,442 32,849,856
Total Assets 238,026,422 238,343,489 208,906,455 210,216,116
Statement of Cash Flows Investments in exploration and development including working capital changes 6,488,075 4,369,027 3,631,266 4,242,277
Cash flow from financing activities 360,570 30,539,400 575,684 (247,499)
$ Cdn 2005 2004 2004 2004 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter
Statement of loss
Loss 2,358,706 2,220,399 1,669,673 2,290,824
Loss per share 0.02 0.01 0.01 0.02
Balance Sheet
Working Capital 38,246,957 15,282,564 20,779,589 3,503,844
Total Assets 211,833,922 184,502,350 186,173,156 165,364,837
Statement of Cash Flows
Investments in exploration and development including working capital changes 3,815,656 4,825,793 8,404,559 11,623,339
Cash flow from financing activities 28,547,950 1,151,446 24,684,265 -
Statement of Loss
Loss for the period
For the period ended March 31, 2006, we lost $1.8 million, or $0.01 per share, compared to a loss of $2.4 million, or $0.02 per share, in the year- earlier first quarter. The lower loss reflects an increase in interest income due to higher cash balances during 2006 compared to 2005, lower stock option compensation partially offset by higher general and administrative costs related to the advancement of the project. We will continue to incur losses until commercial production commences and revenues are generated.
Expenses
Corporate general and administrative
During the first quarter 2006, we incurred a total of $1.7 million for corporate general and administrative expenses ("G&A"), compared to $1.2 million in the same quarter of 2005. Excluding the effect of the change in value of the deferred share units ("DSU's"), costs increased by $601,279 due primarily to higher communications, travel and public company costs. Corporate general and administrative costs are anticipated to remain at approximately the $1.5 million level per quarter, excluding the impact of DSU's, for the foreseeable future, as our current staff level is sufficient to support the increase in activity as the project moves forward. DSU costs for the first quarter of 2006 decreased corporate general and administrative costs by $42,303, while DSU costs increased corporate general and administrative costs by $41,451 in the year-earlier first quarter. The DSU's are revalued each period end based on the closing share price at period end, with the difference between the total value of the DSU's at period end compared to the value at the end of the previous period. If the value is lower, as it was at the end of the first quarter of 2006, the difference is credited to the Statement of Loss decreasing costs for the period. If the share price increases as it did in 2005, the higher value of the DSU's is charged against costs during the period increasing costs. Overall, for 2006 our share price decreased (by $0.34) compared to last year, when our share price increased from the close of the previous year end (by $0.24).
Stock option compensation
Stock option compensation for the first quarter 2006 decreased to $374,015 compared to the first quarter of 2005 cost of $1,223,143. The lower expense for 2006 reflects the issuance of 200,000 options compared to the year earlier first quarter when 2,035,000 replacement options, which vested immediately were issued. The fair value of stock options when granted is amortized to our Statement of Loss over the period in which the options vest. For those options that vest on issuance, the entire fair value of the options is expensed immediately. Stock option compensation is expected to decline in 2006, as we are not scheduled to issue any replacement options.
Project financing costs
During the first quarter of 2006 we incurred $0.1 million in project financing costs. We did not incur any project financing costs in 2005, as we had elected to put project financing activities on hold until the project was further advanced. We restarted project financing activities in January 2006, toward a goal of finalizing project financing in late 2006. Overall, we expect to incur $0.5 million for project financing activities in 2006 leading up to the finalization of the term sheet.
Interest income
Interest income for the first quarter of 2006 increased to $427,657, compared to $66,415 in the same quarter of 2005. The higher interest income this year relates to the higher cash balance due to the public offering, which raised $28.1 million, completed March 31, 2005 and the exercise of warrants in December 2005, which added a further $30 million to treasury. Quarterly interest income should decline as the year progresses as our cash balance declines as we continue with permitting and development activities.
Foreign exchange
For first quarter 2006, we reported a gain of $3,683, compared to a $22,443 gain in first quarter 2005. We record foreign exchange gains or losses on US dollar cash balances held. While a significant portion of our expenses are denominated in US dollars and Romanian Lei, we only convert our Canadian dollar cash balance to Lei at the time of payment. We would expect to continue to see foreign currency gains and losses as we continue to hold US dollars.
Investing Activities
The most significant ongoing investing activities are for our Rosia Montana development project in Romania. Most of the expenditures to date have been to identify and define the size of the four ore bodies, for engineering to design the size and scope of the project, for environmental assessment and permitting as well as village surface rights acquisition. Once we receive our construction permit, the nature and magnitude of the expenditures will increase as we build roads, production facilities, pits, tailings management facilities and associated infrastructure.
Mineral properties
We capitalize all costs incurred in Romania related to our two development projects, Rosia Montana and Bucium, to mineral properties. We invested $6.8 million on our two projects during first quarter 2006, compared with $4.1 million during the same period in 2005. For the quarter ended March 31, 2006 expenditures increased in all the major project areas. Community development activities increased to $0.8 million in 2006, compared to $0.7 million in first quarter 2005. The increase reflects the implementation of the options program, which began in earnest in January 2006; outright property acquisitions are not expected until after the EIA is approved. During first quarter 2006, expenditures for permitting increased to $1.5 million from $1.2 million in the year-earlier period, with the higher expenditures due to the completion of the EIA. For first quarter 2006, expenditures on finance and administration increased to $3.6 million from $1.3 million in the year-earlier, reflecting higher communications and legal costs. In addition, we spent $0.6 million on engineering during 2006 with the completion of the project design and cost update as compared to $0.5 million in 2005. Exploration at Rosia Montana totaled $0.3 million for the first quarter of 2006, compared to $0.2 million in the year earlier quarter. At Bucium, a scoping study was completed during the first quarter to determine the economics of developing the resource. The most economic option for Bucium is to have the ore processed through the Rosia Montana facilities. The scoping study cost $0.1 million during first quarter 2006 compared to $0.4 million in the year earlier period. Mineral Properties also includes capitalized depreciation in the amount of $0.1 million for 2006 and $0.2 million for 2005, related to capital assets used in Romania.